Panel Seen Urging a Shoe Tariff

By Jane SeaberryBy Jane SeaberryAugust 7, 1985

The Cabinet's Economic Policy Council is expected to recommend this week that President Reagan impose tariffs -- not quotas -- on shoe imports, a move that would please members of Congress who represent states in which shoes are manufactured but would anger some free-traders.

Sources said that the decision had not been "set in stone" as of last night, but that the Cabinet council was leaning toward a recommendation for tariffs. White House spokesman Larry Speakes said yesterday that the Cabinet would discuss the shoe issue with the president on Friday and that he would consider the issue while on vacation.

Speakes denied reports that the Cabinet council would recommend quotas, but he didn't say what type of plan the Cabinet favored.

The International Trade Commission recommended in June that the president impose a novel import quota system in which the government would auction the right to import certain amounts of shoes. Sources said that the administration does not favor quotas, under which foreign companies would raise prices to make up for lost volume and reap higher profits.

Under tariffs, the U.S. government would get the benefit from duties imposed on imports. Foreign shoe companies still might raise prices, but probably by smaller amounts to avoid pricing the shoes out of the market.

Under law, the president is required to decide the issue by Sept. 1. The ITC recommended an 18 percent reduction in imports of nonrubber footwear valued at more than $2.50 a pair. Imports of these shoes would be reduced from 575 million pairs in 1984 to 474 million pairs in the first year of the quotas.

The ITC also said that the quotas should remain at the same level in the second year, but gradually increase in the final three years of relief from competition by imports.

Importers and the domestic shoe industry -- in which employment has dropped from 215,000 workers in 1970 to about 120,000 today -- have argued hotly over the issue. In addition, a letter signed by 19 Republican senators was delivered last week to the White House, urging the president to reject restrictions on imported footwear.

Shoe importers maintain that import restrictions would result in higher shoe costs for consumers. Government and private economists have estimated that shoe quotas would cost American consumers between $50,000 and $80,000 for each job saved in the industry, whose average annual wage is about $14,000.

"The cost of restraints is too high and benefits to the domestic shoe manufacturing industry too negligible to warrant any such action," the Republican senators said in their letter. They also said that import restrictions would lead to retaliation against American exports.

The ITC ruled that the domestic industry had been injured by imports, but noted that it may not consider the effect on consumers. That issue may be considered by the president, however.

Sources said that, in addition to the argument about costs to consumers, the Cabinet council has considered the effect of import restrictions on the ability of some developing countries to earn enough foreign exchange from exports to pay the interest on their debts.

Many debt-strapped developing countries, such as Brazil, are attempting to straighten out their internal economic problems and pay off millions of dollars in debt to foreign banks by exporting goods to the United States.

However, they say that, while the United States is urging them to export more, western countries are building protectionist barriers to imports of their goods.